Playing The Trump Effect On FX Markets

Trump will soon assume his elected office, and potentially change FX markets forever. Well, it’s already happened. But what we’ve seen happen now, has been mostly ‘talk’ – whereas in 4 days, it will be ‘reality.’ First let’s look at the best example in FX of the Trump Effect, USD/JPY traded as (FXY), Guggenheim CurrencyShares Japanese:

(click to enlarge)

This long slide was a no-brainer trade of a lifetime. A blind bat with no wings could have flown through this tunnel. Once it was clear that Trump was going to implement a pro-USD policy one way or another (after the election) the USD strengthened against all pairs but most notably against the Japanese Yen . Note that, this chart represents the JPY going down, not up, as you would see in a USD/JPY chart which is quoted in the reverse.

Stock traders can trade FX in their stock accounts through ETFs. The downside, is that you don’t get leverage. The huge upside though – huge options! There are many deep out of the money options to play such an event. So what will happen to Guggenheim CurrencyShares Japanese now? Probably, a short reversal maybe back to 87 Max, and then a continued slide down to historic levels. That’s because FX markets haven’t priced in ‘The Trump Effect’ completely yet.

Take a look at any of Trump’s policies which can impact FX, let’s look at the potential scenario where Trump labels China a Currency Manipulator – for which they certainly are. But here’s the catch – EVERY fiat currency manipulates their currency via central bank policy. Here’s where the mainstream media is wrong. Fred Imbert of CNBC claims that Trump is wrong because China has allowed the Yuan to float against major currency pairs. This is true. But China imposes capital controls, which has given rise to a massive black market not only FX but for cash transfers too. The Yuan is highly controlled by the PBOC, even if that means selling Yuan to support FX operations in foreign markets.

It’s clear where Fred is getting his misinformation from:

“The notion of labeling China a currency manipulator in this day and age is just silly,” said Edward Alden, senior fellow at the Council on Foreign Relations. “If Trump had said that China was a currency manipulator in 2006, I would have said, ‘hoorah,’ but in 2016, it’s a laughable mistake. I wonder who is advising Trump on this.”

So here we go. The CFR represents the ‘globalists’ that are behind the push to keep the global status quo, as is. They’re in China, and making good profits from the fact that China manipulates their currency. The best example being Wal-Mart Stores, Inc. (WMT) that directly benefits from the Chinese manipulation. Simply put, Wal-Mart Stores, Inc. profits huge because their supply is in China and their customer base is mostly in the United States in US Dollars. Not everything sold at Wal Mart comes from China, but almost nothing sold at Wal Mart is manufactured in the United States, with the huge exception of Wal Mart brand products “Equate” which are manufactured in Bentonville, AR (but, they are really ‘assembled there – they take huge advantages of their USD buyer base in foreign countries). Anyway, if the Yuan rapidly appreciated, Wal Mart would have a serious problem on their hands. It’s a question of good for consumers, bad for billionaires. Has Wal Mart greatly helped the economy? Many detractors say not, such as Noam Chomsky, who say that in the last 30 years corporate America has relied on financial manipulations, more than producing value. Wal Mart is a perfect example, as well as being a huge benefactor of a cheap Yuan.

Practically, a company as successful as Wal-Mart Stores, Inc. will adapt, it isn’t as if this is going to make Wal-Mart Stores, Inc. crumble – far from it. They’ll manufacture in Arkansas, there will be millions of illegals desperate for less than minimum wage factory jobs after Trump builds the wall. Let’s not forget that foreign companies such as Hyundai, Kia, and many others – manufacture their products in places like Alabama. BMW has a massive plant in South Carolina, in Spartanburg. So this trade situation is not a one way deal, nor is it as simple as fixing the Chinese Currency Manipulation problem. The point is that there are many factors at play here, corporate and political power, central bank policy, and of course real trade as seen in the Baltic dry index. And what Trump has accomplished, for better or worse, he’s made all this depend on his latest Tweet.

Tomorrow, Trump can make a Tweet that can cause the CurrencyShares British Pound Sterling ETF (FXB) to crash or skyrocket, based on the markets interpretation of it. That’s more powerful than his new job in the Oval Office. Such power maybe never existed before, because it’s always been reserved to big billionaire hedge fund traders, and it’s always been limited. Just because Kyle Bass makes a statement, it doesn’t move markets.

So whether you’re knowledgeable about FX or not, you should be, because it can impact the stock market in ways that has never seen before. Previous presidents have been globalists, which tend to want a stable, non-existant FX market – which resembles a one world currency. Trump’s policies are the opposite. By imposing sanctions on China, taxing imports from Mexico, and other pro-America policies, Trump is putting a force in the market that never existed before.

Bernanke had his ‘Bernanke Put’ – Trump has created something that we can only call the “Trump Call” because he’s betting long on America- whatever the consequences will be on the markets. What that means? It means that this plan wasn’t thought out too well. There can be collateral damage, there can be knee-jerk reactions, portfolio rebalancing, and a number of financial ramifications that can rock FX markets. It can potentially make Brexit look like a walk in the park.

One good thing for stock investors generally, it will make companies more evolved, for example half of listed issues do not hedge FX, but the other half do. Corporations who are at the tail end of the “Trump Call” (in 2016, 2015 it was called “Currency Headwinds”) will suffer greatly. Those ahead of the curve, will profit immensely. It can lead to a golden area of finance on Wall St. – but there certainly will be a huge number of firms that won’t evolve, won’t hedge the FX risk, and ultimately, will be bankrupt or bought out.

The “Trump Call” is not only pro-America it’s pro-Wall St. and a great opportunity to make money, but you have to be in it to win it.

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Bitcoin and other cryptocurrencies flash-crashed Saturday night, one day after the US Commodity Future Trading Commission (CFTC) sent subpoenas four cryptocurrency exchanges in an ongoing probe into bitcoin manipulation that began in late July - following the launch of bitcoin futures on the CME, according to the Wall Street Journal
CME’s bitcoin futures derive their final value from prices at four bitcoin exchangesBitstamp, Coinbase, itBit and KrakenManipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.
In delay reaction, Bitcoin fell as much as $433 or 5.6% in Saturday night trading, with some noting that the flash crash happened shortly after a 90th ranked crypto exchange, Coinrail, had suffered a "cyber intrusion", and was likely the more relevant catalyst for the crypto price drop.
While major Cryptocurrencies were down from 4.5 - 5.5%, Bitcoin Cash dropped over 8.4%. 
The CTFC subpoenas were issued after several of the exchanges refused to voluntarily share trading data with the CME after being asked last December. Of note, the CFTC regulates the CTC. 
According to the WSJ, the CME, which launched bitcoin futures in December, asked the four exchanges to share reams of trading data after its first contract settled in January, people familiar with the matter said. But several of the exchanges declined to comply, arguing the request was intrusive. The exchanges ultimately provided some data, but only after CME limited its request to a few hours of activity, instead of a full day, and restricted to a few market participants, the people added.
What is curious, is that if there was indeed manipulation since the launch of bitcoin futures, it was to the downside, as the price of cryptos peaked around the time the crypto futures were launched, and are down well over 50% in the 6 months since.
Coinbase in particular has been under the watch government regulators. On February 23, Coinbase sent an official notice to around 13,000 customers to notify them they were legally required to turn over their information to the IRS
The IRS had initially asked Coinbase in July 2017 to hand over even more detailed information on every one of its then over 500,000 users in an attempt catch those cheating on their taxes. However, another court order in Nov. 2017 reduced this number to around 14,000 “high-transacting” users, which the platform now reports as 13,000, in what Coinbase calls a “partial, but still significant, victory for Coinbase and its customers.”
Coinbase told the around 13,000 affected customers that the company would be providing their taxpayer ID, name, birth date, address, and historical transaction records from 2013-2015 to the IRS within 21 days. Coinbase’s letter to these customers encourages them “to seek legal advice from an attorney promptly” if they have any questions. Their website also states that concerns may also be addressed on Coinbase’s Taxes FAQ. The ongoing legal battle between Coinbase and the US government dates back to November, 2016, when the IRS filed a “John Doe summons” in the United States District Court for the Northern District of California.
On Feb. 13, personal finance service Credit Karma released data showing that only 0.04 percent of their customers had reported cryptocurrencies on their federal tax returns. 
And in April, former New York Attorney General, Eric "we could rarely have sex without him beating me" Schneiderman, launched a probe of 13 major cryptocurrency exchanges according to the Wall Street Journal - claiming that investors dealing in the fast-growing markets often don’t have the basic facts needed to protect themselves.
Former AG Schneiderman’s office said the program, called Virtual Markets Integrity Initiative,  is part of its responsibility to protect consumers and ensure the integrity of financial markets, and its goal is to ensure that investors can have a better understanding of the risks and protections afforded them on these sites.
CFTC Commissioner: Crypto is a "modern miracle"
While the CFTC, IRS and New York Attorney General's office are all cracking down on cryptocurrency exchanges, it seems to all be part of the government's embrace of virtual currencies.  Last week CFTC Commissioner Rostin Benham called cryptocurrencies a "modern miracleat the Blockchain For Impact Summit held at the UN in New York last week. 
But virtual currencies may – will – become part of the economic practices of any country, anywhere.  Let me repeat that:  these currencies are not going away and they will proliferate to every economy and every part of the planet.  Some places, small economies, may become dependent on virtual assets for survival.  And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations.
We are witnessing a technological revolution.  Perhaps we are witnessing a modern miracle. -Rostin Benham
Rostin hinted at the upcoming legal action against the exchanges during his speech:
Under the CEA and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation and the entity has sufficient capital to protect itself.  The CFTC has the authority to ensure compliance. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.

Meanwhile, the official Bitcoin website removed references to Coinbase, Blockchain.com and Bitpay, according to Crypto News - only one of which, Coinbase, was subpoenaed. 
http://Bitcoin.org  just removed/censored the 2 largest US Bitcoin companies (@BitPay Payment processing and @coinbase Bitcoin Exchange). It’s a good move: Bitcoin Core is obviously no longer Bitcoin, and should ideally be removed from both @BitPay and @coinbase too.

The CFTC officially recognized bitcoin as a commodity in September of 2015 when it went after Coinflip for operating a platform for trading bitcoin options without the proper authorization. Since the agency effectively asserted its dominance over the bitcoin market with that decision, this is the first time it has given its blessing to an bitcoin options trading platform. Expect a burst of institutional trading activity to follow - especially since they approved institutional options trading in July
This post sponsored by Total Cryptos @ www.totalcryptos.com  

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